Feedlot struggles expected to continue

A livestock analyst says there will be more beef and good demand next year, but fat prices are likely to struggle

EDMONTON — A feedlot owner who is making money is likely to share his good fortune with cow-calf producers by paying more for their calves.

But this past year has been a struggle for the feeding sector after a strong 2017.

There will be more beef and good demand next year, but fat prices are likely to struggle, said Anne Wasko, market analyst for Gateway Livestock, who spoke at Farmfair International, which was held in Edmonton Nov. 7-11.

Many factors affect the market and she predicts volatility will continue, so producers need to ensure they have risk management plans in place.

She said three major factors are affecting Canadian producers this year.

The basis in 2018 has had a major impact with Canada trading at a premium to cattle in the United States. Basis is the difference between the local Canadian price and the U.S. market.

“Most weeks in 2018 we have traded above the U.S. market. We have never had such a strong basis before,” she said.

This has kept cattle at home and packing plants are busy and profitable.

“If you are not a marketer of fat cattle, this still applies to you because what is good for the cattle feeder, especially in Western Canada, it is good for all of us through the system,” she said.

Last year there was a positive feeder cattle basis above the United States for the first time. The 10 year average is $13 per hundredweight under the U.S. market. Right now, the basis is about minus $4, but it is volatile and can bounce back to a more favourable position.

Cattle prices may not have been as good as many would have liked this fall, but they would have been lower if not for the positive basis.

She predicts margins are going to get tighter because of record amounts of beef coming down the pipeline due to massive expansion in the U.S. and Canadians sending large numbers to market rather than keeping females at home.

The second factor to watch this year is the strength of demand — more beef has been sold for more money in Canada and the U.S.

The final factor is the largest fed cattle slaughter since 2010 as packers run full throttle.

“By next year we will be into a new all-time record high for U.S. beef production,” she said.

However, the U.S. economy is hot and that benefits the North American beef sector because consumers have more money to spend.

“A strong economy in the U.S. is nothing but good for us,” she said.

“Our prices are tied to the U.S. price, and when the U.S. economy is rolling, it is good for all of us,” she said.

Canada also produced more beef, and sales were strong at the retail level.

The Canadian cow herd is flat with no growth for nine years.

Statistics for 2019 may reveal further decline.

Expanding the cow herd is unlikely as drought continues, especially in the southern regions of Western Canada.

Heifers are being sold as feeders for beef rather than being held back for breeding.

More cows are being marketed, resulting in the largest non-fed slaughter since 2010. They are being killed in Canada or were exported to the U.S. for processing.

More cattle are going on feed in Alberta and Saskatchewan, according to the monthly Canfax cattle-on-feed report.

By the end of 2018 there could be one million head on feed at one time, which has not happened in a decade. There are also U.S. feeders landing in Canada. Last year, about 100,000 arrived from the northern tier states and were placed in southern Alberta. There is another increase in imports for 2018, but final numbers have not been calculated.

“Cattle can flow in either direction depending on what the economics are doing,” she said.

Expansion in southern Alberta feedlots has occurred, but no new pens were built. Instead, lots that shut down have returned to business so they have more capacity to feed cattle this fall compared to last year.

Fewer Canadian feeder cattle were exported. Last year, 120,000 feeders were exported and this year about 40 percent more were sold with most moving south. She doubts if it could reach 200,000 head in exports compared to some years when a half million left the country.

Surplus beef is moving to other destinations.

Canadian beef exports are up four percent and landing in the U.S., Japan, China and Hong Kong, while sales to Mexico are down. The value of the beef sold is up by eight percent and worth $2.6 billion.

Global markets for beef, pork and chicken are expanding around the world with the most growth in beef production occurring in Argentina, Brazil and United States.

In terms of world production, Canada contributes three percent of the supply, but as an exporter it stands sixth behind Brazil, the U.S., Australia, India and New Zealand.

The top importers are China, the U.S., Japan and South Korea, all prime customers for Canada.

“We are a small player and we need to plan strategically,” she said.

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